Telematic Interactive 2023 Q4 review

• Telematic Interactive Bulgaria AD reported 8% revenue growth for Q4 YoY reaching BGN 113.1mln. Casino revenues take the lion’s share of BGN 106.9mln or 94.1% of the total operational revenues after 19.8% YoY growth. Sports-betting reached BGN 6.6mln, which marked a decline of 23.3%, but that was due to the migration to a new sports-betting platform in Q2 and Q3. The new platform has better functionalities and is expected to have a positive role in growing this business in the future. Still, this line accounts for 5.8% of the operational revenues.
• The remaining 0.1% is revenues from providing gaming content to B2B customers. The company has strong expectations for its potential, but this account is also very different between the individual and consolidated revenues, where they are ca. 5%.
• The main reason behind the increasing revenues is the increased monthly average active clients as well as the average income per client. The new CRM system, as well as staff training towards a more individually targeted approach, has lead to a 6.5% increase in active clients, to reach a total of 88,662 per month. The average income per client has gone up by 8.9% The conversion rate has dropped to 33% and the churn rate still stays at impressive for the industry levels of 4%.
• OPEX increased proportionately a notch more than sales – by 24.2% to BGN 89.9 mln. The largest contributor is External services, which increased by 28% to BGN 57.6 mln but represents nearly 64% of OPEX. In that, the 3 largest sub accounts, responsible for 93.4% of the account value are Marketing, which increased 33.4% to BGN 21.4 mln (23.8% of OPEX), Fees for gaming content, which increased over 28.3% to BGN 24.7.7 mln (24.3% of OPEX) and Payments services, which increased 13.3% to BGN 10.8% (12% of OPEX).
• External services is the account showing the expense made to provide gaming content. The company uses gaming content by external suppliers, where the compensation is based on revenue share. The larger growth of this account (compared to total revenues) is due to the one-off expense in Q3 associated to the migration to the new gaming platform.
• On the shareholder meeting on 11.03.2024 the decision to distribute a dividend will be made – BGN 0.39 per share for a total amount of BGN 5 mln.
• The profile of the company is steadily shifting from an expected capital gain stock to a dividend stock.

Commentary:

Currently, the company shows outstanding performance by industry standards, but there are a few warning signs we should be aware of when looking forward.

The signs for reaching revenue plateau are increasing with the results of the last quarter. While the number of active clients has increased year on year, that metric has shown a decline of 13.7% when comparing Q4 2022 with Q4 2023. The conversion ratio has also dropped by 5% for the abovementioned quarters from 34% to 29%. It is clear that Telematic Interactive is getting into a more mature phase of its development and the decisions to implement a more effective CRM system and new gambling games, which limit the loss for the casino, show that.

It is natural to ask about the plans of the management once TIB reaches saturation point and annual sales growth reach zero. Currently, the saving point is the increase in efficiency, which allow considerably higher revenue per client (30% up when compared both quarters). However, the time when they will have to look seriously into ways to expand is not far down the line.

Strategic steps, such as the one where expansion in Peru is targeted, are imperative. Aside from the increased revenue, it will show that the company can adjust and target even more foreign destinations. This will be an extremely positive sign for the management and should create a much stronger trust in investors, thereby increasing the demand for its shares. Currently, little is known about this expansion and what the initial results are. The information bulletins by the company in Q3 stated that we would see stronger push in the region by the end of the year, but so far little has been revealed. Should this becomes reality, we, as well as most investors, would be very interested to see revenue and cost breakdowns per geography. Similarly, disclosures about the advances in the North Macedonian will be greatly appreciated.

We should not forget, however, that despite everything, Telematic Interactive is a superior investment. The steps towards efficiency have eroded part of the EBITDA and the Net Margin, but still the company remains a cash rich enterprise with very low debt, operating at nearly 19% margin – a feat very few businesses can show. Additionally, the dividends they distribute make this one of the best picks when shortlisting secure high-dividend yield stocks. The latest announcement for a general meeting on 11.03.2024 just proves this. The transparency, as mentioned earlier, is commendable and top notch. In this sense, it would be very positive to see the management focus again on a step that could be a game changer as it has shown that it knows how to do gaming and has attracted decent amount of interest through shareholders, who believe in their ability.

Full review can be accessed here.